Sprint Nextel Case Analysis
1. How much goodwill impairment charge did Sprint Nextel report in 2007? During 2007, Sprint Nextel recorded a non-cash impairment charge of $29.7 billion in accordance with Statement of Financial Accounting Standards, or SFAS, No. 142 Goodwill and Other Intangible Assets. 2. Why did Sprint Nextel write down their goodwill in 2007? What are some other indicators for goodwill impairment in general?
Sprint Nextel wrote down their goodwill in 2007 primarily due to the company’s acquisition of Nextel in 2005 and reflects the reduction in estimated fair value of Sprint’s wireless reporting unit subsequent to the acquisition resulting from, among other factors, net losses of post-paid subscribers. Some other factors may include a sustained, significant decline in share price and market capitalization, a decline in our expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, the testing for recoverability of our long-lived wireless assets, and/or slower growth rates, among others.
3. How did Sprint Nextel reflect this impairment in financial statements?
During 2007, Sprint Nextel recognized a $29.7 billion non-cash impairment charge to goodwill related to the Wireless segment. This charge is presented separately in the 2007 statement of operations.
4. How often does Sprint Nextel test its goodwill for impairment and what are the testing steps? Sprint Nextel reviews their goodwill for impairment annually in the fourth quarter, or more frequently if indicators of impairment exist. To assess goodwill for impairment: First, they compare the fair value of the wireless reporting unit with its net book value. They estimate the fair value of the wireless reporting unit using discounted expected future cash flows, supported by the results of various market approach valuation models. If the fair value of the wireless reporting unit exceeds its net book...
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